Updated: October 5, 2020
The stock market is a great place to invest in. And it is greatly profitable if you know what you are doing.
Unfortunately, a lot of people put money in the stock market hoping that it will make money for them. But hope is not an investment strategy. And you’ll most likely lose money instead if you do that.
Below are 10 things to remember for successful long-term investing in the stock market. Follow them and watch your investment gains grow significantly through the years
1. Invest regularly.
Investing should be a habit. It should not be something you do only when you have extra cash. My recommendation is to invest at least P5,000 every so often.
If you can save P1,000 per month, then you can invest every 5 months, or at least twice a year. It may not seem much at first, but you’ll be amazed at how much your money will grow over the years by simply doing this.
2. Avoid timing the market.
Timing the market is for stock market traders. Or more accurately, it is for those who have the time to monitor charts and analyze a company’s fundamentals.
If you’re usually busy with other things, such as work, then trading is not for you. Instead, just invest regularly, and enjoy the ride through the ups and downs of the market.
Personally, I’d rather focus on building and managing my businesses, than spending hours looking at stock charts. The former is also profitable, but more self-fulfilling for me.
3. Buy the right companies.
There are more than 200 public companies listed on the Philippine Stock Exchange. And not all of them are a good buy for long-term investing.
Since you will hold the shares for several years, it makes sense to invest in companies that are consistently profitable as a business. Moreover, they should also have good growth potential for the future.
It’s important to pick the right stocks if you want to maximize your investment earnings. To help you get started, you can check out my personal stock pics for long-term investing.
4. Follow a strategy.
It’s not enough to buy the right companies, you should also have an investing strategy as well. And one of the best long-term investment strategies that successful investors do is cost averaging.
This means buying a fixed value of shares of a company at consistent frequencies. To learn more, you can read my three-part article on cost averaging here.
5. Don’t be afraid of volatility.
One of the reasons why people are afraid of the stock market is because of its volatility. It’s always difficult to see your portfolio in red or lose significant value during the year.
But always remember that you are a long-term investor. This means you have the advantage of riding through the market’s ups and downs.
Moreover, history shows that the market goes up more frequently than down. In the last 29 years, the stock market was up 20 years while it was down only 9 years.
6. Invest more when the market is down.
What do you do when there’s a SALE at the mall? You buy! And it’s the same for the stock market. When prices are down, it’s a SALE for long-term investors. Find good but undervalued companies, and shell out some extra cash to invest in them.
7. Diversify your investments.
Many investors will advise you to not put all your eggs in one basket. This is a great tip that you should really follow.
In stocks, be sure to buy companies from different sectors or industries. In your investments, don’t just put money in the stock market, but also invest in mutual funds, UITFs, bonds, and others.
Learn more about diversification: How To Diversify Investments: Personal Portfolio Management
8. Know your costs.
Stockbrokers make money from transaction fees, which they charge every time you buy AND sell. Additionally, there are taxes and other fees that you pay for each transaction.
Be sure to consider these costs when you’re building and managing your portfolio. Moreover, when you’re diversifying towards pooled funds and other investments, be aware of the fees you’ll pay.
These costs may seem small, but they can eat up a lot of your potential income in the long-term, especially for pooled funds with annual management fees.
9. Set financial goals.
A lot of people ask me how they’ll know if they should already sell their stocks. My answer is always when its value is already enough for you to afford a specific financial goal.
For example, you’re planning to buy a condominium worth P5 million. When your portfolio surpasses that value, then it’s time to sell your shares and buy that property.
If you don’t have a financial goal, you’ll always be asking yourself if it’s a good time to already sell — this is stressful. But if you have a specific value in mind, the decision of when to sell will be easy.
10. Review your portfolio at least once a year.
Remember that you are investing for a financial goal. So it’s important to check at least once a year if you’re still on track towards reaching your target.
Sometimes, you’ll need to invest more money, or move some of it towards another stock or investment. At times, this means already selling to lock in your gains because your goal is near and you’ll need the money soon.
This is also called rebalancing your portfolio, which you can learn more here: How To Rebalance Your Portfolio: Personal Portfolio Management.
The stock market is a high-risk investment. But that risk becomes more manageable the longer you invest. Because you give these companies time to grow their business, which in turn increases the share prices.
That’s why it’s important to pick the right companies. Buy those which you are confident will grow through the years ahead.
And lastly, remember that investing should be a habit. Start as early as you can, and don’t stop until you reach your financial goals.
Be consistent and you’ll be able to surely afford your dreams.